What are your car finance repossession rights if you can’t keep up with hire purchase repayments?

When entering into any car finance agreement, it’s important that you fully understand all the key facts of the arrangement. We’re all guilty of skim reading documents and only checking that figures are in line with expectations – but we could be missing out on important rights!

I doubt any of us would enter a finance agreement thinking we’ll default on repayments, but should you ever find yourself in that unfortunate position, this information could be useful.

Hire purchase (HP) and conditional sale agreements (CS)

If you have entered into a HP car finance agreement (sometimes called a conditional sale agreement), you have a couple of car repossession rights: the ‘halves rule’ and ‘thirds rule’.

The halves and thirds rules are two separate levels of protection which you have, as a consumer. They’re triggered when you have either paid half or a third of the total amount payable (TAP).

‘Thirds Rule’ – your repossession rights

With hire purchase or a conditional sale, the lender has the right to notify you that they wish to repossess the vehicle in the event of non-payment. If they want to take it from private property (a driveway or garage), they require a court order - but not if they wish to collect it from a public place such as the side of the road.

Importantly, though, if you have paid a third of the TAP, your lender will need to get a court order, irrespective of where they want to collect the vehicle from. The rules are slightly different in Scotland, where the lender requires a court order irrespective of whether you have paid a third of the TAP or not.

If they do try to repossess your vehicle without a court order when you have paid a third of the TAP, it’s worth seeking legal advice. The whole agreement could even become unenforceable and any payments made might be refundable.

‘Halves Rule’ - voluntary termination (VT)

When you have paid at least 50% of the TAP you are in a position to voluntarily terminate your finance agreement. This means handing the keys back to the lender and walking away from the agreement with nothing else to pay.

The car will need to be in a suitable condition, in line with the expectations of its age and mileage. With voluntary termination of car finance, fair wear and tear is acceptable, but the lender can bill your for anything beyond this.

This right is written into the original agreement to protect you against car depreciation, and can save you a lot of money if you find yourself with negative equity car finance (owing more on the finance than the car is worth).

However, you should be aware that a ‘Voluntary Termination’ flag will be recorded on your credit file, and whilst lenders are not allowed to use this information negatively, they may restrict the term or ask for a deposit on future deals to help prevent you being in the situation of reaching negative equity again.

Can my car be repossessed if I have paid more than half?

In line with the ‘thirds rule’, if you’ve paid more than half of your hire purchase loan, your car finance repossession rights take effect, and your lender cannot repossess your vehicle without following the proper processes. However, you can return your vehicle to the dealership at any point after you’ve paid half.

How to get out of a hire purchase agreement

I hope you never find yourself in a situation where you need to use this information, but if you do need to take action using the ‘halves’ and ‘thirds’ rules, I’d recommend you make the notification to end your agreement in writing to the lender. You should also keep a copy for yourself, so that you have a clear record to refer back to should you need it.

If you do need to know how to get out of a hire purchase agreement, or need help lowering your monthly payments, it may be possible that we can help you find a lender who’ll refinance your current deal - but it’s important to remember this could increase the overall cost of the vehicle in the long run.

Need to know more about your consumer rights act as a car buyer? Get in touch for more help and advice from our experts.